22 September 2009

Lomborg's Economists' Missed Opportunity

Bjorn Lomborg is famously known as the “sceptical environmentalist“ after the title of his widely debated 2001 book of the same title. Since then, he has been working with economists to identify the most effective strategies for bettering human welfare by applying cost-benefit analysis to a portfolio of possible policy options.Lomborg’s most recent effort asks, if we spent $250 billion on climate policy, how should we spend it to be most effective?

The two of us were among a group of international experts asked to propose and critique a number of policy options, such as avoiding methane emissions, improving forestry practices, increased spending for energy technology innovation and researching solar radiation management, a form of geoengineering.The work of these experts was then presented to a panel of distinguished economists, including three Nobel Prize winners, for a final ranking of policy options in response to climate change.Surprisingly (to us at least), geoengineering research was identified as the number one priority in the list of most efficient climate policy options while policies to put a price on carbon appeared dead last.

While we applaud the effort of Copenhagen Consensus Centre to raise debates about how to prioritize finite resources on challenging global problems, we take issue with the results.It can be a very useful exercise to systematically go about ranking policy options, both to identify what those options are, and how they might compare.Cost-benefit analysis has its critics (us among them) but with an understanding of the methodologies strengths and weaknesses can contribute to more effective policy making.

However, in the case of the Copenhagen Consensus on Climate Change, we think that Bjorn Lomborg and his distinguished economists have muddled rather than clarified discussion of climate policy options, for at least three reasons.

First, to suggest that geoengineering research has a high potential payoff is no different than saying that research into fusion energy has a potential high payoff, or for that matter, so too would research into how to turn atmospheric carbon into diamonds.The problem is, just as with fusion or more far-fetched options, geoengineering is almost universally viewed as being severely limited as a practical policy response to accumulating carbon dioxide in the atmosphere.While we support continued research into geoengineering (as well as into fusion) we believe the prospects for such research to result in solutions to accumulating carbon dioxide in the atmosphere to be vastly overstated by the Copenhagen Consensus.

Second, policies focused on putting a price on carbon faired poorly in the exercise.A carbon tax – at any level – was ranked dead last by the experts, while emissions trading did not even make the list.Oddly, the second highest ranked option – focused on clean energy innovation and deployment – was presented to the panel of economists as being accompanied by a low but growing carbon tax, as part of the proposed policy design.Yet, Lomborg's panel of economists chose to cite the need for innovation and ignore the carbon tax.The two of us disagree about how best to price carbon, with one of us favoring carbon trading across countries and trace gases, while the other favors a low carbon tax to finance clean energy innovation.However, we strongly agree that putting a price on carbon is a necessary component in any portfolio of policies designed to decarbonize the global economy.

Third, with respect to adaptation, the results of the Copenhagen Consensus on Climate Change arrived at results contrary to the broader Copenhagen Consensus exercise on the world’s most challenging problems.The broader exercise, which has been conducted several times now, consistently ranks as the most effective investments policies focused on addressing disease and malnutrition, which could save the lives of millions of people around the world.Such policies would also have the effect of making people, especially in poor countries, much less vulnerable to climate change.Yet, in the current exercise on climate change the economists ranked policies focused on reducing vulnerability below geoengineering and other research and only as a “good” investment.Perhaps this says something about the fickleness of economists and their tools, but also about the structure of the Copenhagen Consensus exercise.

So what can we learn from the Copenhagen Consensus analysis? It is indeed worthwhile to discuss and debate policy options on climate change.However, a simplistic ordering of options obscures the fact that efforts to foster clean energy innovation and deployment, to reduce vulnerabilities to climate variability and change, and to conduct research must all go forward at once.These policies are not trade-offs with one another but complements that also overlap with other pressing problems such as expanding energy supply, development and fundamental research into the climate system.

Unfortunately, the Copenhagen Consensus on Climate Change has obscured these complexities and thus offers little in the way of practical advice to decision makers grappling with the challenges of climate policy.